Ethereum Struggles with Declining Investor Interest, Lower Staking Yields and Regulatory Uncertainties
Summary:
With a 7% drop in the price of Ether (ETH) from October 6 to October 12, investor confidence in Ethereum seems to be decreasing. Ethereum has also been underperforming the overall altcoin market since July. Factors contributing to this include a low interest in Ethereum staking, regulatory uncertainties, and a decrease in 7-day transaction fees and total value locked (TVL) in the past two months. Latest metrics indicate a diminishing demand, a trend that some analysts suggest could see Ether's price fall below $1,500.
Between October 6 and October 12, Ether (ETH) has seen a drop of 7% in its valuation, sinking to a seven-month low of $1,520. A minor boost to $1,550 did occur on October 13, however, various indicators point towards a decrease in both investor interest and faith in Ethereum. Some may associate this trend with a more general decline in cryptocurrency interest, highlighted by a three-year low in Google searches for "Ethereum". Yet, since July, Ethereum's performance has lagged behind the broader altcoin market capitalization by 15%.
A closer observation shows this shift in price occurring simultaneously with a decrease in Ethereum's mean 7-day transaction fees to $1.80, the lowest point over the past year. For context, only two months ago these fees were exceeding $4.70, a cost which was considered steep even for processing and concluding batched layer-2 transactions.
One noteworthy factor impacting Ether's valuation was comments made by Charles Hoskinson, founder of Cardano and co-founder of Ethereum, concerning the 2018 classification of Ether as a non-security asset by the U.S. Securities and Exchange Commission director William Hinman. Hoskinson alleged on October 8 that this decision may have been influenced by "favoritism".
Decreasing interest in Ethereum staking by investors participating in network validation is also evident, with the yield decreasing from 4.3% to 3.6% in just two months. This change happened in parallel to an increase in ETH supply due to a reduction in burn mechanism activity, subsequently reversing the scarcity trend seen previously.
On October 12, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), a French Central Bank division, amplified regulatory concerns when it emphasized the "paradoxical high degree of concentration" risk within decentralized finance (DeFi). The ACPR report suggested the need for specific regulations for smart contract certification and governance to ensure user protection.
Analysing the derivatives metrics provides insight into professional Ether traders' positions following the price correction. Commonly, ETH monthly futures are traded at a 5 to 10% annualized premium to compensate delayed trade settlement, something usual in the crypto markets.
The premium for Ether futures dropped to its lowest point in five months on October 12, indicating a reduced demand for leveraged long positions. Interestingly, even the 8.5% increase in Ether's price between September 27 and October 1 failed to raise ETH futures above the 5% neutral threshold.
Evidence of diminished demand in the past two months is highlighted by a decrease of Ethereum's total value locked (TVL) from 13.3 million ETH to 12.5 million ETH. This trend indicates dwindling confidence in the DeFi industry and fewer benefits compared to traditional finance's 5% yield in U.S. dollars.
An analysis of metrics related to decentralized application (DApps) usage helps understand the implications of this TVL drop. Some DApps, including DEX exchanges and NFT marketplaces, are not financially intensive thus making the deposited value less significant.
For Ethereum, unfortunately, this TVL drop is coupled with a decrease in most ecosystem DApps activity, including leading DEX Uniswap, and the largest NFT marketplace, OpenSea. Diminished demand is also evident in the gaming sector, exemplified by Stargate showing only 6,180 active accounts on the network.
Regulatory doubts, although not directly linked to Ether's categorization as a commodity, could negatively impact DApps industry. Also, there is no guarantee that major ecosystem cornerstones such as Consensys and the Ethereum Foundation would not be affected by potential regulatory actions, especially within the U.S.
Considering the lowered demand for leveraged long positions, descending staking yields, regulatory dilemmas, and a wider loss of interest as demonstrated in Google Trends, the chances of Ether's price falling below $1,500 remain relatively high.
Please note that this article is intended for informational purposes only and should not be considered as legal or investment advice. The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
Published At
10/13/2023 6:07:12 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.